The MacNeil/Lehrer Report; 6045; Energy Civil War

ROBERT MacNEIL: Good evening. Whenever reporters want to catch your eye with a story about tension between the states, they call it `a new civil war,` and that`s what newspapers have been calling a growing dispute between states with big energy resources and those without. With deregulation of domestic oil and gas prices, and the pressure to develop U.S. energy sources, there`s a bonanza in prospect for the states that have it all. But what is angering the have-not states is an effort by some to make that bonanza even bigger by charging a large severance tax, a tax on extracting a product like coal from the ground. The immediate issue is coal, but severance taxes on oil and gas could also pump billions of dollars out of the pockets of consumers into the treasuries of a few states. There`s a growing cry that this isn`t fair, that these taxes could turn a handful of states into a domestic OPEC- Both Houses of Congress are working on bills to limit the taxes, and that has produced just as big an outcry from the energy states. Tonight, the struggle they are calling the `energy civil war.` Jim?

JIM LEHRER: Robin, first in the case of coal. There are 14 coal-producing states which charge severance taxes on the coal that comes out of their ground. Most of the tax rates are relatively tow, and have been around a tong time. But two western states, Montana and Wyoming, have recently rocked that boat by dramatically raising their rates. Montana now has a 30 percent tax, Wyoming 17 percent. Forty percent of the nation`s coal reserves are in those two states, and it`s a kind of tow-sulfur, tow- pollutant coal utility companies in particular are now being forced to use by the federal government. Those utilities and other coal customers are revolting against paying the higher taxes, and have turned to Washing-ton for help. Members of Congress from consumer states are answering that call with legislation that would put a limit on stale severance taxes. One of those bills is sponsored by Senator Dale Bumpers, Democrat of Arkansas, who three weeks ago chaired a Senate energy committee hearing on the issue. Senator, what kind of limit would you put on coal severance taxes?

Sen. DALE BUMPERS: Twelve and a half percent.

LEHRER: Why?

BUMPERS: Well, number one, that is an arbitrary figure, Jim, and I recognize that. But I think it`s a reasonable figure. It certainly would do more than enough to accommodate the impact of the increased energy production, particularly in states like Montana and Wyo-ming. But I think there`s one point that has not been made in yours and Robin`s opening, and that I want to stress right now. My bill only goes to federal coal, and I`m talking about coal that is owned by the United States. Now, Montana, for example, has 25 percent of ail the coal reserves in this country, and about 50-60 percent of that is federal coal. Well, as a matter of fact, I believe 70 percent of it is federal coal. Now, that coal doesn`t belong to Wyoming, doesn`t belong to Montana, doesn`t belong to any private owners. It belongs to you and me and the 225 million people of the United States. Yet, Wyoming and Montana are choosing to levy this exorbitant tax on coal that belongs to the United States and the people of the United States, and that`s what my bill goes to.

LEHRER: Why-- you used the word `exorbitant.` Why are these severance taxes exorbi-tant in your opinion?

BUMPERS: Well, number one, severance taxes are supposed to be levied to accommo-date whatever impact the severance may cause. And in this case, for example, we are already giving all the states out west, especially Montana and Wyoming-- they get 50 percent of the royalty on this coal. For example, the United States will lease that coal. They`ll get anywhere from 10 to 25 percent royalties. Take a $10 ton of coal. Let`s assume the royalty is 20 percent. That`s $2 the federal government`s going to gel on each ton of coal it leases. Fifty percent of that, or $l of that, is going to go back to the state that it was lifted from, namely Montana and Wyoming. And an additional 40 percent of that goes into a reclamation fund to help them with their water projects out there. So, they`re already getting 90 percent. We have numerous other federal programs to help them with their impact. And now, in the case of Montana, 30 percent tax on a $10 ton of coal-- that`s $3 a ton in addition to all these other things.

LEHRER: If some limit is not put on this, either through your legislation or somebody else`s legislation, what do you think the impact is gonna be on the consumer states like Arkansas, like your state?

BUMPERS: Well, obviously, for example in the case of-- Let`s take Wyoming, Senator Wallop`s home state. Projections right now are that Wyoming will be collecting almost a $350 million surplus each year by the year 1990. based on projected increases in the cost 0f_ in producing coal. Right now, Montana`s putting 50 percent of theirs in a trust fund -- it has no relationship to any impact they`re suffering. And secondly, the impact is felt immediately. When a new mine is opened there, the impact is felt immediately. They won`t collect the severance tax until after the mine goes in operation. The consumers of this country are going to pay an inordinate price, and what Wyoming and Montana are trying to do -- and I don`t denigrate them, Senator Wallop and I are good friends in the Senate, and Senator Simpson, Baucus, Melcher. they`re all fine friends of mine, and I`m not just taking on those two slates. But you know, we`re gonna all hang together, or we gonna hang separately. And they`re trying to make themselves blue-eyed Arabs. They`re becoming a member of the OPEC cartel.

LEHRER: Would you feel the same way, Senator, if Arkansas had a tot of coal reserves?

BUMPERS: You know, I`d guess, and I`m being as honest as I could, if my state were in the same posture and my state legislature had passed such a tax, I`d probably be in the position of defending it here. I might not do it very exuberantly and enthusiastically, because I feel very strongly about this. But as a politician, I might try to defend it, even though in my heart, I think it would be bad wrong.

LEHRER: Thank you. Robin?

MacNEIL: States like Montana and Wyoming vigorously defend their right to impose these severance taxes. Senator Malcolm Wallop is a Republican from Wyoming, and a member of the Senate Energy Committee. And he`s a leading defender of the region`s prerogatives in the energy tax area. Senator WALLOP, are you trying to make yourselves into blue-eyed Arabs?

Sen. MALCOLM WALLOP: We certainly don`t think so. I think that we have a very justifiable use for the money that we`re collecting, and I might say that 1 don`t know where Senator Bumpers gets the figure of $350 million by 1990, because that`s a hundred times what we`re getting in royalties right now. And frankly, I don`t think we want that kind of increase in our coal production in Wyoming between now and 1990.

MacNEIL: Well, what is your justification for charging 17 percent severance tax?

WALLOP: Robin, there are several. First of all, there is an enormous impact that is coming to a slate that is changing from an agricultural economy to a domestic-- to a mining and minerals economy. We`ve had the fastest- growing areas of the country in the last four or five years. We`ve had to build roads with no funds. And those are access to the new mines. We`ve had to build schools for children that weren`t there. Had to build hospitals. We`ve had to build-- to have policemen, where all we needed was game wardens for antelope before. We`ve had fire requirements, increases in housing, and demands on environmental things that are related directly to the increased housing-sewage and water.

MacNEIL: But Senator Bumpers says you get plenty of money back under the existing royalty setup to pay for all that impact.

WALLOP: I know he does, and I don`t know what he considers plenty. But I doubt that Arkansas would be entirely enthusiastic with $3 million a year to take care of an additional 100,000 people in five years.

MacNEIL: What would happen if the Congress limits your severance taxes to 12 1/2 percent?

WALLOP: Well, two things. One is that a ceiling automatically becomes a floor, and the Congressional Research Service has estimated that it would increase the cost to the rest of the consumers in the country by about $4`- $ million if everybody came up to the ceiling. And there`d be no justifiable reason for staying below it. And secondly, Wyoming could easily go into other forms of taxation which are less honest, but would collect the same to deliver the needs to the people of the state of Wyoming, the social needs that we find necessary to deal with the problems of impact.

MacNEIL: How do you answer Senator Bumpers` point that what you`re really doing is levying a tax on coal that doesn`t belong to you as the state of Wyoming, but belongs to the whole nation?

WALLOP: Well, first of all, Wyoming isn`t the only one that taxes that coal. Most of the states that consume it in the form of electricity levy sates taxes on their generated electric-ity, which ends in a far higher tax to the consumer than does the Wyoming severance tax. And secondly, we don`t tax the federal coal. The federal government makes its deal with a private company. They sell the coal for what-- what they want, and they`re obliged to try to get a fair market value. At that time, it becomes the property of the company, not the property of the government. And it is severed from the ground in Wyoming, and the impacts are none the less, whether it`s federal coal or a state coal or private coal.

MacNEIL: Finally, you heard what Senator Bumpers said, that if he came from your state, he might, but without much conviction, be arguing like you. What if you came from his?

WALLOP: Well, he`s a very enthusiastic man, and I believe he would be arguing with great conviction. But I tell you, I see a tot of mischief in what he`s doing, because the implication goes on that somehow or another, this country must spread all its resources in equal parts to everybody, and that would imply that Arkansas ought to give Wyoming a little water, because we`re short of water, and they`ve got quite a tot, except this summer with their drought. But the fact remains that we could make the same argument about Oregon`s taxes on their timber resources, that perhaps their property taxes and their employment taxes are a little too high, and they`re burdening the consumers in the rest of the country, and we have to limit them. Or any other resource in America.

MacNEIL: Well, thank you. Jim?

LEHRER: Senator Bumpers, he says you`re a mischief maker. You say he`s a blue-eyed Arab. What about Senator Wallop`s point, they need the money to build roads, schools, hospitals, for fire protection, housing, in other words, the impact that this mining is having in Wyoming?

BUMPERS: You know how much of this money they`re putting back in to accommodate those concerns of his?

LEHRER: How much?

BUMPERS: About 2 1/2 percent.

WALLOP: Not in Wyoming. That`s a very-- that`s a grave misstatement.

BUMPERS: Well, I`m sorry, that`s in Montana. But I`ll let Senator Wallop tell you how much of this money has gone for impact aid to those communities that are being impacted by energy. Number two. I`ll let him tell you how much additional tax they`re collecting as a result of this increased activity, and the additional 100,000 people that have moved in there.

LEHRER: Senator, you`re on.

WALLOP: Well, we get no additional tax as a result of those people. We get a tot of additional, demand on our tax base, but the--

BUMPERS: Well, they pay taxes, Malcolm. They pay income taxes, they pay sales taxes--

WALLOP: They don`t pay income taxes. Wyoming`s never had one.

BUMPERS: Well, if they`d had one, I`m sure--

LEHRER: What about sales taxes?

WALLOP: Sales taxes, we do. But we do have schools to build, and we are putting out approximately 80 percent of what we collect in Wyoming into impact aid, housing aid, or community aid.

LEHRER: What about the other 20 percent? What is it used for?

WALLOP: Part of that is levied by the counties and it`s used for the same thing. The state simply doesn`t collect it, the counties collect it. They are counting in our severance tax in the 17 percent figure you see there, the 7 1/ 2 percent that the counties collect.

LEHRER: Was the 17 percent arrived at very carefully by measuring the impact of all of this and then figuring out it`s going to take 17 percent over a period of time to get that money--

WALLOP: It has been increased rather slowly over the course of the last six years, a percent or two at a time. We do have, and I think Senator Bumpers would bring it up, we do have a trust fund, a mineral trust fund. But I think that we do not intend to be. and will not allow ourselves to be, another Appalachia, nor will be allow ourselves to be Anaconda`d, such as Montana was, where you had a city at the turn of the century, Butte, of 100,000 people and now. you know, is in poverty.

LEHRER: These trust funds really bug you, right, Senator Bumpers?

BUMPERS: They do, indeed. You know, the state of Alaska -- and I don`t want to get too far afield -- the state of Alaska is gonna have $100 billion surplus from oil royalties in the year 2000, above their annual operating expenses, if their operating expenses only increase 12 percent a year between now and 2000. If I could just make another point, and that is, this 50 percent of the royalties we give them for all the leased lands out there for oil and gas exploration-- we only require that 3714 percent of that 50 percent go for impact. The rest of it they can spend any way they want to. Number two, Senator WALLOP made the point that we levy sales taxes on energy generated in the states where that coal is used, but that`s the legislature imposing a tax on its own people, which is quite different from Montana and Wyoming imposing a tax on the rest of the nation. Number three, he says this is a tax on the company. It`s not a tax on the company. The Constitution forbids--the Supreme Court ruled 200 years ago that a stale may not levy an ad vatorem tax on property. They said the state of Maryland can`t levy a tax on the United States Bank because that`s the power to destroy. So they go through the severance lax-- it`s just a convoluted way of getting the tax without violating the Constitution.

LEHRER: Is that what it is. Senator WALLOP?

BUMPERS: Of course.

WALLOP: I don`t think so. All right, well. Senator Bumpers and I obviously disagree on that. But if it were that, it could obviously be challenged in the court.

LEHRER: One final point that Senator WALLOP made on the 2 1 / 2 percent proposal of yours specifically, that if you do that, then all the other states, everybody`s going to raise it to 12V? percent and you`re gonna cause even bigger problems.

BUMPERS: That is one of the dangers. I think the three basic questions, Jim, are number one, does the United States have the right to levy this tax? The answer to that is clearly, yes. Number two, the question is, should they? And number three, what should it be? Now, the third question`s the only one that`s really in question. I think they have a right 10 levy a severance tax to the extent that they need it to absorb the impact. But I can tell you that even a 12`/2 percent tax will give Wyoming and Montana both the opportunity to have a pretty fat slush fund, because they couldn`t possibly use that much money if we develop that coal the way we`re planning to. And bear in mind, we`re only talking about federal coal. If they want to impose that tax on their own people for Wyoming`s coal-- Did you know that Burlington Northern, who owns land right adjacent to federal lands, will go in there and levy this-- go in there and take coal out. They don`t get any of that royalty back from them that we give them on both coal and oil and gas. They get nothing from them except the severance tax.

LEHRER: Gentlemen, thank you. Robin?

MacNEIL: The coal severance tax is one dispute. A larger one involves all domestic energy, especially oil and natural gas. Six states produce the bulk of U.S. oil and gas-Texas, Louisiana, Oklahoma, Wyoming, California and Alaska. They all impose sever-ance taxes, and stand to collect large revenues in the years ahead. Among those who see this bonanza changing the balance of wealth and power in the country is Felix Rohatyn. He is a New York investment banker, heavily involved in sorting out this city`s financial problems, and lately, he`s been writing and speaking about regional economic issues. Mr. Rohatyn, what will be, do you think, the regional impact of the taxes we`ve been discussing?

FELIX ROHATYN: Well, first of all, from an industrial point of view and from an economic point of view, they will have to be paid by the consuming regions, which are already in great difficulty industrially. They will have to be paid essentially by the big energy-consuming regions of the country, which span from the northeast through the Midwest. Those are regions already in difficulty. Secondly, the states collecting these taxes will be able to use the money to attract industry, to attract taxpayers from other parts of the country, especially from this part and from the Midwest, already-- superimposing a very great burden on a part of the country that`s already very, very shaky socially and industrial-ly. And it seems to me that it can`t be to anybody`s advantage to have a trend that is already very, very troublesome accelerate greatly-- if $120- or $110- or $115 billion of additional wealth is sucked out of the northeast and Midwest to be transferred to a few states, without creating very, very serious difficulties.

MacNEIL: What do you think should be done about it?

ROHATYN: Well, I question first of all the philosophical validity of a state getting the kinds of benefits that these states are going to get as a result of pricing decisions that are entirely foreign, not only to the states, but to the country.

MacNEIL: You mean, because the OPEC countries are raising--

ROHATYN: OPEC pricing sets everybody`s price. I think the issue of oil-- especially oil pricing and severance taxes is quite different from the issue of coal, where indeed if this country is ever going to be independent of OPEC, there`s going to have to be a massive coal-based energy program, which is going to create great difficulties in the coal-producing states, and have great impact. I think that issue is very different, when oil reserves that were five years ago at $10 a barrel are all of a sudden $30 a barrel because of OPEC pricing. I think in Canada you see the beginnings of a country tearing itself apart politi-cally, but at least in Canada the oil-producing states are trying to create some mechanism to recycle .some of the money back to the other parts of the country. And I would think that, without in any way meaning to start any kind of domestic civil war, that some rational discussion between the consuming states and the producing states ought to take place to see if there isn`t a useful way to recycle this money, and to have it invested, either through some kind of an industrial development bank or some other mechanism, in those parts of the country that are going to need enonnous industrial investment, both possibly even including coal-based investment, and to have as its aim to maintain the country as much of a balanced economy as possible, because history is just too full of societies where an imbalance got out of hand, and where class warfare and social strife really got out of hand.

MacNEIL: Briefly, will the bills now before Congress proposing to limit these severance taxes to 12 1/ 2 percent be a useful step, in your view?

ROHATYN: Well, as I said, I think there is a significant difference between coal and oil, and I do think also that the fact that oil pricing is completely beyond our borders and beyond our control, and very arbitrary, since obviously it has no relationship to replace-ment cost, certainly not in Saudi Arabia, makes it different. 1 don`t think simply limiting the percentage is really going to solve the problem, because as energy prices keep escalat-ing, these amounts of money are going to escalate. I think there has to be sooner or later-first of all there has to be a recognition that there is a problem, and I don`t see that recognition yet. Nationally, I don`t see-- The main presidential candidates seem to be studiously ignoring this issue, because obviously it`s not a pleasant issue to face.

MacNEIL: We`ll leave it there and come back. Jim?

LEHRER: Those from the producing states do have a different view of this situation, too, of course, and none more so than Senator Bennett Johnston, Democrat of Louisiana, and member of the Senate Energy Committee and chairman of its subcommittee on energy regulation. Are you willing to concede that this has a potential for tearing the country apart, as Mr. Rohatyn says it does?

Sen. BENNETT JOHNSTON: Oh, I don`t think so, Jim. You always bring up the visions of holocaust when you`d like to get something somebody else has. But I find it rather amusing that Mr. Rohatyn from New York, which is sixth in per capita income, is saying that my state of Louisiana, which is 44th in per capita income, by putting a tax of I2W percent on crude oil, is somehow going to rip off the rest of country and move all the industry in the country down there. It hasn`t happened in the past. We`ve been producing this for over 20 years. It`s not going to happen now. It`s not--

LEHRER: Why isn`t it going to happen now?

JOHNSTON: Well, because the amount of money is not that great. I mean, at 12 1/ 2 percent on crude oil, and less than three percent of value on natural gas, it`s just not--

LEHRER: That`s what your rates are in Louisiana?

JOHNSTON: That`s right. It`s seven cents a thousand on natural gas, which when you put it into the value, comes out at less than three percent, which I think is very nominal. It`s less than New York charges as a generation tax for-- that is, on the electric bills from this coal they import from the Midwest and the oil they import from the south. And so, it`s just not true and it`s not fair. Our tax is not unreasonable.

LEHRER: Do you think that Louisiana is entitled to it? Whether it`s reasonable or unreasonable, do you think you`re entitled to it?

JOHNSTON: Absolutely. I think under our federal system, I think the cases under the Supreme Court, in my view, are clear that the Congress does not have the power to limit the amount of severance tax on a natural resource, or on a resource such as agriculture, or on anything else. I don`t think the federal government has that power. And if they did have the power. I think it would be very unwise to get involved in that imbroglio to say who has-- what is the right measure of a state`s interest in its own natural resources, whether it be timber or iron ore or uranium or oil or gas or agriculture, or the ability to go to the beach, or whatever it is. For the federal government to come in and limit that puts a-- does violence to our basic federal system. And if you talk about an energy civil war, a real civil war, I think you`d get that if the federal government tried to put that limit on states` ability to tax.

LEHRER: You don`t see it the way Mr. Rohatyn-- His term was that Louisiana -- he didn`t say Louisiana by name -- but he`s saying Louisiana and the other states like you are sucking the wealth out of the northeast and the Midwest, taking it down there and getting rich off the people who can the least afford it, because they`re hurting the most now financially.

JOHNSTON: Well, that`s not true at all. Our public school teachers are eighth from the bottom in what they get paid. If we`re so rich, I wish we`d be able to raise those school teachers` salaries. The fact of the matter is, you cannot argue with the figures-- 44th in per capita income in my state, sixth in his state. If you want to know what New York really ought to do-- New York and the other states of the northeast ought to try to get some energy. You know how tong it has been since we built a refinery in the northeast, or since we`ve-- Well, we`re still trying to drill out there on Georges Bank, and we`re still running into this official opposition from some states in the northeast to drill out there, when we`ve drilled in the Gulf of Mexico for over 30 years. And yet we can`t get them to somehow recognize the real problem, which is the lack of energy nationwide. That`s where the northeast needs to join in the parade in this country and help us produce energy of all sorts.

LEHRER: Thank you. Robin?

MacNEIL: Senator Bumpers, do you agree with Mr. Rohatyn that the prospect is as dire as he says, and that merely limiting the severance tax percentage is not enough?

BUMPERS: I think he is probably right, and I think that Mr. Rohatyn`s predictions about the fragmentation, or the Balkanization of the country are extremely well-taken. The massive transfer of wealth from this country to the OPEC cartel-- everybody recognized that as the root of most of the economic evils in this country right now-- the economic problems in this country right now. Now, you`re going to have that compounded by allowing a few states to literally suck the life, the economic lifeblood out of the rest of the country simply because our minerals, our oil and our gas and our coal, happens to be located in those particular states. And it is going to fragmentize the country. It`s an issue that`s going to have to be dealt with. Senator Johnston`s point on severance taxes is well-taken. Louisiana does not have an excessive severance tax. But there, as in Alaska and Texas and California, you have state-owned lands. You remember the old Tidelands Oil case which gave the coastal states 12 miles out.

MacNEIL: Could I-- we just have a couple of minutes. Could I move on? Senator Wallop Do you have a view on this rather larger consequence that Mr. Rohatyn has raised?

WALLOP: Yeah, the view that I have is that the only other way to travel down the road that he`s forecasting -- and Senator Bumpers is -- is to colonize us. And I don`t think we`ll put up with that. The fact is that if you want that energy produced, you have to recognize the social and environmental and human costs of producing it. And if you`re going to stay there and say that we`re going to-- we have plans to develop this coal, it`s our coal, it`s the nation`s coal, you are going to make those states energy colonies, and I don`t think you`ll find anything but true Balkanization out of a program like that.

MacNEIL: Several points, Mr. Rohatyn, especially that New York and states like it already have a much higher standard of living than these states, and have been reluctant to develop energy resources here.

ROHATYN: I would agree with Senator Johnston that we have been very remiss in this part of the country in terms of exploring for energy off the-- offshore, and that-- But that does not change, in my judgment, the validity of the argument that I`m trying to make, which is that I`m trying to stay away from the moral issue of right and wrong. I see a country that is going to tear itself apart just as when OPEC started increasing its prices in 1973, it was written on the wall that the Third World was going to be bankrupt, and that the Western World was going to just be somewhat-- maybe five, ten years behind. Today, we find the Third World with a deficit of $70 billion a year. We find fisherman`s strikes in France because of energy prices. We find strikes in Poland because-- partly because of energy prices. And it seems to me if you extrapolate, you can see the same sort of thing happening--

MacNEIL: I hate to ask you to do this. Can you finish it in a word or two?

ROHATYN: I think this country is headed for great difficulties. I don`t think we ought to have a regional war, but I think we ought to talk about the problem.

MacNEIL: We have to leave it there. Thank you, senators, all in Washington. Thank you, Mr. Rohatyn. Good night, Jim.

LEHRER: Good night, Robin.

MacNEIL: That`s all for tonight. We will be back on Monday night. I`m Robert MacNeil. Good night.